Sustainability – Challenges in Sourcing Agricultural · PDF fileSustainability –...
Transcript of Sustainability – Challenges in Sourcing Agricultural · PDF fileSustainability –...
Sustainability – Challenges in Sourcing Agricultural Materials
Hans JöhrCorporate Head of Agriculture
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The Nestlé Company
• The leading food company– 98'458 mio CHF in 2006
• Swiss based, active world-wide– 481 factories in 87 countries– about 250'000 employees
• Global sourcing strategy – local adaptation– source about 2/3 of our
agricultural materials in emerging markets
• Total purchasing value of agr. materials: approx. 17bio CHF
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Main Agricultural Materials
Milk11.9 mio t
Coffee741'000 t
Cocoa 370'000 t
... fruit, vegetables, cereals, potatoes ... partly sourced directly from farmers
... fruit, vegetables, cereals, potatoes ... partly sourced directly from farmers
... sugar, oil, meat, spices and other ingredients sourced through trade
... sugar, oil, meat, spices and other ingredients sourced through trade
Value: 17.5% of our turnover
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Sourcing Objectives & Challenges
• Sourcing must contribute to: – sustainable &
profitable business– competitive pricing– lowest system costs
(zero defect, no-waste)– shared values
throughout supply chain
• Sourcing must be the base for safety and quality
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Quality is our priority
The 3 Dimensions of Food Quality
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Emerging economies are set to boost the GLOBAL DEMAND and SUPPLY for consumer goods
Source: The Economist and OECD
Emerging economies have been growing faster than developed
ones and catch up thirsts of their ever-growing population
The Re-Emerging Model
Speeding Ahead
Fast growing economies represent:
• 1/2 of the world energy consumption
• 70% of world's Foreign exchange reserves
Drivers for change
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Opportunity: serving more consumers
Growth concentrated in developing countriesand overwhelmingly urban
Drivers for change
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Drivers for change & challenges
• Changing business environment– trade & manufacturing – regulatory requirements
• Consumer expectations– new quality thinking – manufacturer liability
• Consumers concerns– food safety issues– production methods
• Geographical decoupling of supply and consumption
– logistic / infrastructure / legislation
• Future food / feed / fibre / energy needs
The big challenge today is breaking the link between economic growth and negative environmental impact. There are clear limits to the earth's natural resources capacity.
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Consumer expectations and concerns
??????
Access / Affordability
Safety
Convenient
Conscience
Function
environment, technologies (GMOs),
animal health & welfare ...
environment, technologies (GMOs),
animal health & welfare ... emot
iona
l qua
lityethics, fair trade
labor issues, rural life, politics ...
ethics, fair tradelabor issues, rural life,
politics ...
Social Responsibility & Personal Values
func
tiona
l qua
lity
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Challenges in upstream supply chain
• Transparency, traceability from farm to table to address consumers preferences:
Consumer TradeRetail
FoodIndustry
TradeProcessor Farmer Input
Providers
??????ethics, fair tradelabor issues, rural life,
politics ...
ethics, fair tradelabor issues, rural life,
politics ... environment, technologies (GMOs),
animal health & welfare, ...
environment, technologies (GMOs),
animal health & welfare, ...
SAIN / SAI
• quality & safety• efficiency &
productivity• consumer perception • company image
NEMS ...
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Collaborate on industry level
Food Industry Initiativesupport of sustainable agriculture in general
• Key raw materials• Direct sourcing• Preferred suppliers
60+ CountriesAgricultural raw materials supply chainmainstream agriculture
pre-competitive
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Member companies
In cooperation with
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Examples of Nestlé direct sourcing
• Milk – Argentina, Australia, Brazil, Chile,
China, France, India, Spain, Turkey, Pakistan ...
• ensure sustainable supply
• Coffee– China, Indonesia, Malaysia,
Mexico, Philippines, Thailand ...• assist in coffee cultivation
• Cassava (starch) – Ivory Coast
Public Private Partnership with• ensure long term supply
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Nestlé Example
• Milk. e.g. Pakistan– Farmer training in
• Animal husbandry, feeding, health
• Farm management, profitability
• Milk quality, safety• Collection, cooling in 3200
villages!• Sustainable production ...
• train about 140'000 farmers
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Nestlé Example
• Coffee e.g. Thailand
– Arabica Experiment & DemonstrationFarm - part of the Royal Development Project
• scientists trained in somatic embryogenesis
• train "trainers" & farmers (up to 16'000 / year)
• fertilization, irrigation, harvesting ...
• bought 34'400 tons in 2006
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The Concept of Shared Value Creation
Manufacturing & Operations
Food safety standards &
workforce development
Adapted environmental, labor and safety
practices
Consumers
Nutrition knowledge & awareness
New/Renovated Products for
Nutrition, Health and Wellness
Agriculture & Sourcing
New innovative sourcing & purchasing practices
Agricultural & local
supplier development
Value Chain Innovations for Nestlé
and Society
Building the
Context for
Growth
Our overall strategy
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Consumer TradeRetail
FoodIndustry
TradeProcessor Farmer Input
Providers
Extension serviceson technical assistance &farm management advise
Extension serviceson technical assistance &farm management advise
All inclusive value chain approach linked to consumers
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COMPLIANCELaws, Business Principles, codes of conduct
SUSTAINABILITYProtect the future
CREATESHARED VALUEReduce poverty, Improve health
Empower people
COMPLIANCELaws, Business Principles, codes of conduct
SUSTAINABILITYProtect the future
CREATESHARED VALUEReduce poverty, Improve health
Empower people
COMPLIANCELaws, Business Principles, codes of conduct
SUSTAINABILITYProtect the future
CREATESHARED VALUEReduce poverty, Improve health
Empower people
Corporate Social Responsibility built into Nestlé's strategy
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Aimed at creating improved business conditions for the company:
reliable, high quality sourcingimproved government functioning -regulatoryskilled, loyal workforcesuperior products which successfully compete
2/3 of all 250'000 employees receive formal training every year
For society, results in:
improved earnings of suppliers
increase skills, job stability
higher quality of life
greater stability, economic and social development
Linking farmers to markets to generate regular cash flow
Creating shared value in practice
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• Interactions with more than 500 000 farmers directly supported by more than 650 sourcing agronomists and 4'500 technical staff working at farm level and in supply chain
• Running more than 150 Sustainable Agriculture projectsworldwide with many different stakeholders
Our knowledge sharing so far...
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Final remarks
• Sustainable supply of safe & compliant agricultural materials absolutely required
– safety & compliance are the "license" to sell– consumers simply expect that their food is safe and produced out of sustainable
production systems (triple bottom approach)
• Huge efforts of the whole chain are required– enforce good agricultural practices – apply active and not re-active sustainable sourcing programs
• Sharing knowledge and value with stakeholders – based on trust and efficiency– mutually agreed "sustainability" standards / schemes / approaches...– clear common objectives (focus on measurable targets)
• Nestlé supports – joint industry efforts on sustainable agriculture
(http://www.saiplatform.org/)– runs own programs on direct sourcing from farmers
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Definition
"Sustainable Agriculture is productive,
competitive and efficient while at the same time
protecting and improving the natural environment
and conditions of the local community"
(definition mutually agreed by SAI founding members;
Group Danone, Nestlé and Unilever)
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Sustainability is a business case
Sustainable sourcing practices are widely accepted by leading Business Research Institutions as being the way forward to
successful business
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FCFF = Free Cash Flow to the Firm. WACC = Weighted Average Cost of Capital
Sales
Cost
Tax Rate
Investments
FinancingStructure
RiskPremia
FCFF
WACC
•Resource Efficiency
•Lower Environ. Risks
• Innovative Products
•Price Adv.•Quality Adv.•Brand Value
•Differentiation•Customer Satisfaction
•Employee Satisfaction
•Total Tax Contribution
•Reputation
OUTCOMESPROCESSES
•Risk-, Rep.- & Stakeholder Mgt.
•Regulatory & Compliance
•Production & Resource Mgt.
•R&D, Innovation•CRM•HR•Tax•Finance• IT• IR•Communication•Reporting (Sustainability)
•Sponsoring•Community Affairs
Cor
pora
te R
espo
nsib
ility
ShareholdervalueVALUE DRIVERS
*Source PricewaterhouseCoopers
Business case for sustainability